Does Specialization in M&A Really Matter?

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⏱ Reading Time: 3 minutes

The more highly specialized your business is, the more this matters. M&A firms that specialize in a particular sector know the key players in that sector. Buyers seeking to acquire in that sector will seek out these M&A professionals, register with them, and do whatever they have to do to get on the new listing notification list.

Think about it – how can someone who specializes in nothing sell your highly specialized business? This is especially true in highly complex manufacturing businesses.

A specialist will:

  • Engage with better-quality buyers and industry leaders
  • Speed the sale process by finding the right synergistic buyers
  • Better understand the professional qualification of buyers and whether their experience is truly relevant
  • Obtain better prices through quality buyer engagements and competition
  • Smooth the due diligence process by knowing what’s required in certain sectors

Here are some real-life examples of better results because of specialization.

As you read, ask yourself if the result would have been possible with a generalist:

The Defense Contractor

  • The Challenge – This was an 80-year-old, second-generation defense contractor who was a Tier I provider to names like Northrop Grumman, Lockheed Martin, GE, and General Dynamics. Our challenge was finding a buyer who was not only financially qualified but who had the professional chops to work in difficult tolerances and hard-to-cut metals. The acquirer had to have a proven history such that the iconic customers would welcome the continuity of the relationship and LTAs.
  • The Result – The Long-Term Agreements were seamlessly transferred to the new buyer. Each of the industry giants respected the acquirer’s long history and capabilities. They were already doing different work for some of the same customers.
  • Added Benefit – The acquirer also purchased the real estate and committed to keeping the jobs in the community.

The Precision Fabricator

  • The Challenge – Fabrication companies are a dime a dozen. Those working in these tolerances are few and very far between. Sellers often think that an ideal buyer is a company that does exactly what they do but on a larger scale. However, this transaction proved that “different” can be better. In this case, the buyer was a premium precision CNC house.
  • The Result – The acquirer was already working with the same type of customers, who were asking them to expand services into precision fabrication. The buyer already understood the mindset of the customers and what it would take to maintain and grow the accounts. He was so well respected in precision CNC for top-quality work in the same sectors that the acquisition was welcomed by the fabrication customers.
  • Added Benefit – The two shareholders had two completely different exit timeline desires. They both got what they wanted.

The Aerospace Component Manufacturer

  • The Challenge – This Seller wanted a premium price, a fast exit, and a guarantee the jobs would remain at the current location. The added challenge was that the founder was arguably one of the greatest minds in precision CNC, working with difficult-to-cut metals and insanely tight tolerances. If you wanted to work for him, you had to know how to do the math behind all the available design software and do it quickly.
  • The Result – My firm’s valuation was 20% higher than the highest of the five others the seller got before calling me. That was the result of understanding the difficulty of the manufacturing process. Within 45 days of listing, we were fielding multiple offers. The highest was 35% higher than the 20% higher valuation. The founder worked part-time for only a few months before complete retirement in the timeframe he wanted.
  • Added Benefit – This client went with the second highest offer because of the long-term commitment to keep the manufacturing local. Even though we would make less transaction commission, there was never any pressure to go with the higher offer. We understood our fiduciary duty to act in the client’s best interest, not our own, and we respected his wishes.

I offer for consideration that none of the above transactions would have had the same result with a generalist at the helm of the M&A process.

Yes, specialization really does matter in M&A transactions, particularly in manufacturing.

If you’re considering the sale of your manufacturing business, ask yourself:

How can someone who specializes in nothing sell your highly complex manufacturing business?

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